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For me, one of the highlights of 2014 was attending Rudy Kurniawan’s sentencing hearing. Kurniawan had become larger than life, rocketing to stardom in the rare and fine wine world (see my first post for details). At the hearing, though, the illustrious Dr. Conti, wizard of wine and bilker of billionaires, was as unassuming as a petty thief. I guess the prospect of going to prison for a long time is kind of sobering.

Kurniawan had been convicted of mail and wire fraud in connection with the sale of counterfeit wine. Last month, his attorney filed an appeal alleging that (1) the FBI’s searches of Kurniawan’s home violated the Fourth Amendment, (2) the events alleged in Count One of the indictment (some of them time-barred) were improperly joined, and (3) it was unfair to use only the price paid by Kurniawan’s victims (as opposed to the impact of the price on these wealthy individuals) in establishing a sentencing guideline.

The Fourth Amendment Claim

The Fourth Amendment, which protects us from unreasonable searches and seizures and requires that warrants be based on probable cause, has a complex progeny of case law that I won’t even begin to tackle in this post. At issue here are (1) the reasonableness of the search of Kurniawan’s home at the time of his arrest (and whether the fruits of that search were admissible at trial), and (2) whether there was probable cause for a warrant.

On May 5, 2012, the Government filed a complaint against Kurniawan. Early in the morning of May 7, 2012, upon an arrest warrant but no search warrant, FBI agents knocked on Kurniawan’s door. Kurniawan answered the door and was taken into custody shortly thereafter. When asked if there was anyone else in his home, he indicated that his mother was. The agents also asked if he had any weapons in his home, and he said that he did not. During this inquiry, Kurniawan’s mother came downstairs and was ordered to step outside, which she did.

The FBI agents claim that they entered Kurniawan’s home to ensure that the premises were secure. Once inside, however, they did a search of the entire home, based on the fact that they saw wine bottles and a crate of wine bottles from just inside the front door. The evidence seized during this search was critical to the Government’s case for mail fraud. Kurniawan argues that with both residents outside, no contraband in sight, and no reason to believe that weapons or other individuals were inside, this search violated the Fourth Amendment and, therefore, the fruits of the search were an invalid basis for a warrant and were inadmissible at trial.

The Duplicity Claim

Count One of the indictment, mail fraud, alleged multiple unrelated acts that took place over the course of seven years: “a private sale in May 2005, an auction in January 2006, an auction in October 2006, an auction in 2008, a direct sale in September or November 2006, and an auction in 2012, as well as unspecified mailings in connection with these events generally.” It did not indicate which of these acts were linked to the alleged fraud. Furthermore, according to Kurniawan, all but two of these acts were beyond the jurisdiction of the District Court because they were barred by the statute of limitations (i.e., they were too old to be prosecuted).

Kurniawan argues that each of these acts should have been charged separately instead of being consolidated into a single count. He claims that this consolidation “severely prejudiced” him. Federal Rule of Criminal Procedure 8(a) requires that a complaint contain a separate count for each offense. Even when the offenses charged are of the same or similar character, are based on the same act or transaction, or are connected with or constitute parts of a common scheme or plan, they must be charged separately. Kurniawan provides a summary of the policy reasons for this requirement on page 31 of his brief:

avoiding the uncertainty of whether a general verdict of guilty conceals a finding of guilty as to one crime and a finding of not guilty as to another, avoiding the risk that the jurors may not have been unanimous as to any one of the crimes charged, assuring the defendant adequate notice, providing the basis for appropriate sentencing, and protecting against double jeopardy in a subsequent prosecution. United States v. Moloney, 287 F.3d 236, 239 (2d Cir. 2002) (citing United States v. Margiotta, 646 F.2d 729, 733 (2nd Cir. 1981).

The improper combining of alleged offenses into a single count is known as “duplicity.” In this case, Kurniawan claims that he was prejudiced by the duplicity of Count One and by the Government’s failure to specify which mailings were associated with which sales because he:

(1) . . . did not know the underlying specifics of the accusation against him and therefore cannot be guaranteed that he was convicted only on charges which were determined by the grand jury; (2) He may have been convicted upon acts that occurred outside the statute of limitations; (3) There can be no certainty that his conviction was on a truly unanimous verdict.

The Sentencing Guideline Claim

Kurniawan’s final claim is that, in formulating a sentencing guideline, the District Court should have taken into account the impact of Kurniawan’s crimes on his victims, rather relying on the dollar amount of his fraud without any economic context. The Federal Sentencing Guidelines govern the sentencing of felonies and other serious offenses. They provide a framework for the calculation of sentences based on the offense level and the defendant's criminal history. Each offense level is subject to a range punishments. Criminal history is translated into points, which are added to the offense level to determine the sentence. The Guidelines allow for departures (deviations) upward or downward when certain criteria are met.[1]

Essentially, Kurniawan’s argument is that the exorbitant sums that his counterfeit wines fetched were merely a drop in the bucket for their ultrarich buyers, and therefore, the prices over-represented the gravity of the crimes. At the sentencing hearing, Kurniawan’s attorney sought a guided departure from the sentencing guidelines based on the impact of the crimes on the victims. In the brief, he cites the related civil case of Koch v. Greenberg, 14 F. Supp 3d. 247, 277 (S.D.N.Y. 2014), in which Bill Koch sued Eric Greenberg for consigning counterfeit wine to Zachys Wine Auctions, Inc., which then sold that wine to Koch. In that case, the court reduced an award of punitive damages, reasoning that “[w]hile the flagrancy of [Greenberg’s] fraud merits some award of punitive damages, the harm he caused is less compelling. This harm was economic in nature and none of its targets—neither Koch nor other potential buyers at auction—were financially vulnerable.” 14 F. Supp 3d. 247, 277. In particular, the court noted, “[t]he fraud did not cause an economic loss that interrupted Koch’s life by interference with his housing, employment, or savings for retirement.” Id. At Kurniawan’s sentencing hearing, no one in the courtroom was impressed by this line of reasoning.

Kurniawan’s case is fascinating in part because it sheds light on a microcosm of the economic universe—the world of fine and rare wine. In that world, it’s embarrassing to admit when you’ve been duped, and yet, according to Kurniawan, everyone knows that the market is flooded with fakes. On this particular point, the brief is chilling:

From Greenberg and the other collectors, Rudy learned that everybody expected counterfeits. In fact, part of the contest was to see who could figure out what was real and what was not. The remedies if you got a bad bottle were to drink it and point out how it was wrong or put it up for auction so that it would pass to the next guy down the line.

This is likely a self-serving exaggeration (how many people spend thousands of dollars on one bottle and expect a counterfeit?), but surely Kurniawan wasn’t the only one who knew plonk from the real deal. In any event, it is interesting to see a wine-related case in a circuit court. This is definitely one to watch.

[1] Departures are either “guided” or “unguided.” “Guided departures are those departures specifically provided for in the Guidelines.” United States v. Smith, 289 F.3d 696, 710 (11th Cir. 2002).

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